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10 ways to...benchmark your business

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  • Publish date: 28 February 2008
  • Archived on: 28 February 2009

Benchmarking provides a means to compare your firm against other businesses, and identify areas where you can improve your performance. Tom Whitney picks out ten aspects of your business you should assess to see if you measure up.

Small Business Update

This update was published in Small Business Update 50 - February 2008

Small Business Update from Atom Content Marketing is a monthly magazine for people running their own business. Articles vary in length and cover 'hot topics', issues of importance, and current affairs.

1. Focus on your key business drivers. These are the processes that underpin the success of your firm, and will vary from sector to sector and business to business. If you provide a service, customer care is likely to be a key business driver; if you are a high-volume manufacturer, production-line speed will be a key business driver.

2. Decide who to benchmark against. Your local Business Link or trade association should be able to suggest benchmarking partners. Pick firms of a similar size and with similar objectives to help work out industry yardsticks; but also compare with firms outside your sector who excel in areas you want to measure - importing their approach could help you leapfrog competitors.

3. Compare strategic objectives. Can you learn strategic lessons from benchmarking partners? Does a focus on quality standards give them an edge, for instance? Are they developing online sales channels? Think what other firms' strategic objectives would bring to your business, if anything.

4. Assess the efficiency of your processes. Look at the mechanics of your business - the production techniques, quality controls, stock management and so on. How effective are they? How well are you using your technology? Are other businesses benefiting from new ways of doing things?

5. Analyse your allocation of resources. Are you putting resources into the same areas as your benchmarking partners? Do they have more employees, or fewer? In which parts of the business? Have they invested more in IT and other equipment? Are they spending more on marketing?

6. Weigh your costs against industry norms. These might include utility bills, wages or research and development costs. If you can highlight areas where your costs are higher than the average, you may be able to make savings.

7. Calculate sales per employee. This will provide a straightforward measure of productivity and efficiency. If your sales are comparatively low, investigate the reasons; you might find the problem is not with your sales staff but your product, or that you are pitching to the wrong market.

8. Work out your profit margins. Your gross profit margin (direct profit on the cost of goods and services sold) will tell you how efficient your production processes are. Comparing this with your net profit margin (profit after all your costs have been taken off, including marketing and administration) will tell you how effectively you earn profits from sales. But how do you compare with other businesses? Should you streamline your operation?

9. Measure your customer service standards. Customer service is a key battleground for businesses with similar products or services. Working out the proportion of sales accounted for by returning customers will give you a picture of your service levels, as will the number of complaints you receive and the time it takes to fulfil an order.

10. Obtain benchmark information without approaching an external benchmarking partner. You can benchmark your firm's key statistics against widely available industry norms - salary surveys and published information on financial ratios for your industry, for example. You can also access basic benchmarking data for free using Business Link's Benchmark Index.

To access the Benchmark Index, visit www.benchmarkindex.com/

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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